American companies that failed in China

American companies that failed in China

For decades, China has been a top priority for American companies looking to grow.

Indeed, the country’s middle class is simply huge, growing from 3.1% to 50.8% of the country’s total population between the years 2000 and 2018. According to Brookings, there are now at least 700 million people in the Chinese middle class, and this group has never had so much disposable income to spend on consumer goods and services.

Despite the size and potential of the market, China is not an easy place for foreign companies to enter. As this infographic shows, many of America’s biggest names have finally admitted defeat.

Companies by mandate

The following table lists the mandates of each company included in the chart.

It is worth noting that from google head quarter, Alphabet, still maintains a physical presence in China. Google’s services were banned by the Chinese government in 2010.

Society Enter the date Release date Duration in months
eBay July 2003 December 2006 41
Amazon August 2004 July 2019 178
Yahoo! September 1999 November 2021 266
best buy May 2006 March 2011 58
The reception deposit December 2006 September 2012 69
google January 2006 March 2010 50
Forever 21 (1st attempt) June 2008 June 2009 12
Forever 21 (2nd attempt) December 2011 April 2019 88
Forever 21 (3rd attempt) August 2021 In progress In progress
let’s group March 2011 June 2012 15
Uber July 2014 August 2016 25
Macy’s August 2015 December 2018 40
LinkedIn February 2014 October 2021 92

The dates were gathered from various reports and media sources. There may be small deviations from when a company actually entered or exited.

The reasons why these companies pulled out are surprisingly similar and can be broken down into two broad categories.

Retailers are not adapting

Not adapting to the cultural differences of Chinese consumers is a common mistake. Here’s how two US retailers learned that lesson the hard way.

best buy

best buy struggled because Chinese consumers were unwilling to pay a premium for branded electronics. Local retailers could often stock up on similar (or counterfeit) products at much cheaper prices and cut prices from Best Buy.

“Why buy a Sony DVD player or a Nokia phone at Best Buy when you can pay less for the exact same product at a local store?”
– Shaun Rein, China Market Research Group

Best Buy also made the mistake of bringing in its flagship department stores, which were out of reach for most consumers. Due to severe traffic jams, locals preferred smaller stores closer to home.

Home deposit

The reception deposit expanded in China around the same time as Best Buy, but unfortunately that was another cultural mismatch.

Home Depot has failed to acknowledge that “do it yourself” repairs are not a strong cultural match for China. Labor costs are relatively low, so rather than doing the job themselves, many homeowners prefer to hire someone else to do it. On the other side of the equation, the American brand failed to convince the contractors carrying out the repairs and renovations.

Home Depot’s product offerings also remained unchanged from America, making it a poor match for local tastes. As a point of comparison, Ikea has been present in China since 1998 and continues to open new stores to this day.

Tech companies clash with regulators

Uber’s the experiences in China provide a good case study of how American tech companies struggle to succeed in Asia’s largest economy.

To begin with, entering the Chinese market was incredibly expensive. Uber has spent billions on subsidies to lure customers and drivers, and the losses quickly piled up. To make matters worse, domestic rivals like Have I got also distributed grants.

Operationally, Uber has faced several hurdles. To avoid problems with Chinese data localization laws, the company needed servers on Chinese soil. Its navigation provider, Google Maps, also had limited accuracy in the country. This left Uber no choice but to partner with Baidua Chinese technology company.

The straw that broke the camel’s back, however, was likely a set of impending regulations targeting the ride-sharing industry. Under these rules, Uber risked losing control of its data and would need provincial and national regulatory approvals for its operations. In addition, subsidies would no longer be allowed.

Uber realized that doing business in China wasn’t viable, but its exit wasn’t exactly a failure. In 2016, Uber sold its assets to rival DiDi and took an 18.8% stake in the company. Ironically, DiDi is now embroiled in a dispute with Chinese regulators over its NYSE listing.

Technological spillovers continue

Since Uber’s departure, the Chinese government has tightened its grip on the tech industry. This caused more American companies to leave the country, including yahoo and LinkedInwhich is now owned by Microsoft.

Both companies announced their withdrawals in 2021 and were pretty clear about the reasons for their decision. Yahoo cited its commitment to a “free and open” internet, while LinkedIn says its decision was due to a “significantly more difficult operating environment and stricter regulatory requirements”.

Given geopolitical tensions between the United States and China, companies that generate data (often seen as a national security concern) will likely continue to face regulatory hurdles.

Outside of technology, China still represents a huge opportunity for American companies. By 2027, the country’s middle class is expected to reach 1.2 billion peoplea quarter of the world total.

About Christopher Easley

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